Now Reading: RBI draft rules may curb NBFC pricing flexibility on floating loans
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RBI draft rules may curb NBFC pricing flexibility on floating loans
The Reserve Bank of India has proposed new rules that could limit how larger non-bank lenders revise interest-rate spreads on floating-rate loans. Under the draft Interest Rates on Loans and Advances Directions…
The Reserve Bank of India has proposed new rules that could limit how larger non-bank lenders revise interest-rate spreads on floating-rate loans. Under the draft Interest Rates on Loans and Advances Directions 2026, lenders must adopt a board-approved methodology setting spread components such as credit-risk premium, operating costs, tenor premium and business-strategy premium.
Once a floating-rate loan is originated, only the credit-risk premium may be changed in the first three years for NBFCs outside the Base Layer and for housing finance companies. Base Layer NBFCs are exempt from this three-year freeze. The draft does not force non-bank lenders to use an external benchmark but demands greater transparency and discipline in how spreads are set and disclosed.
The RBI has invited stakeholder comments before issuing final directions. If enacted, the framework could make loan pricing more predictable for borrowers while reducing lenders' ability to adjust pricing in response to changing funding costs or competitive conditions.
Indian Opinion Analysis
The draft directions advance a harmonisation the RBI began in 2019 when it mandated banks to link all new floating-rate retail loans to an external benchmark. NBFCs and HFCs were then left out, creating a regulatory gap that let them revise spreads more freely than banks did. For the roughly 9,800 NBFCs registered with the RBI, the three-year freeze on non-credit spread components will most constrain mid-tier and large lenders, which rely on spread flexibility to manage wholesale borrowing costs. The central bank's board-approved methodology requirement will also force lenders to formally separate pricing elements that many currently treat as opaque. The consultation closes on 31 May, the final circular, when issued, will set a compliance deadline that could disrupt how non-bank lenders price their entire floating-rate book.
Source: bfsi.economictimes.indiatimes.com
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